Wednesday, August 6, 2014

Skymark mulls pull-out from Narita and Yonago.

Skymark Airlines (BC/SKY) is considering completely pulling out of Tokyo/Narita (NRT/RJAA) on October 25th, the end of the Summer 2014 timetable, and possibly downgrade Yonago (YGJ/RJOH) to a spoke city, in an effort to cut unprofitable routes and restructure their network after heavy losses (Skymark posts 5.7 billion JPY loss for 1Q FY2014.) and a likely hefty penalty from Airbus for the A380 cancellation (Skymark's Airbus A380 order in jeopardy.).

From Narita, Japan's third largest carrier currently operates two daily round-trips each to Okinawa/Naha (OKA/ROAH), Sapporo/New Chitose (CTS/RJCC), and Yonago, but these were intended to feed their long-haul international routes that were to be operated by the Airbus A380. Now that the order has been canceled and international plans shelved, there is no need for them to keep a domestic network at Narita, which used to include Asahikawa (AKJ/RJEC), Ishigaki (ISG/ROIG), and Kobe (UKB/RJBE) as well.

Although Naha and New Chitose show latest load factors (June) of 64.5% and 67.9%, respectively, above the system-wide average of 65.6%, low-season rates dropped to 50-60% in FY2013. With both routes directly competing with LCCs Jetstar Japan (GK/JJP) and Vanilla Air (JW/VNL), Skymark has had to keep prices down to remain in the race, and thus hasn't been able to produce enough yield. The Yonago link continues to bleed with a June load factor of 28.1%.

Meanwhile, its Yonago focus city, which was only added to the network on December 20th last year and expanded from April (Skymark expands Yonago, axes Asahikawa and Kumamoto.), has not seen improved results. The latest load factor (June) for the daily New Chitose round-trip was 43.6%, while the also once-daily Naha link was at 45.6%, and their Kobe flight at 45.0%. Their twice-daily Tokyo/Haneda (HND/RJTT) service was doing best at 59.0%, but still below the system-wide average, while the Narita link was at a miserable 28.1%, as aforementioned. Yonago could see all but its Haneda flights axed, if not a complete closure.

Although international ambitions for Narita have been shelved, Skymark will now ask the government for midnight slots at Haneda to use its A330s (Skymark Airlines inaugurates Airbus A330 service.) for routes to Hawaii, Singapore, and Thailand. The A330s currently serve only domestic routes, and therefore sit on the ground at night, so this would enable them to increase utilization and go international without additional aircraft acquisition costs. Their A330s are fully equipped with long-haul-compatible galleys. However, this plan does have its share of regulatory hurdles it has to overcome.

Meanwhile, rumors of an AirAsia Japan (Mk II) (AirAsia Japan is officially reborn; first flight June 2015.) tie-up (and investment in Skymark) are circulating, though their CEO Yoshinori Odagiri has commented "Nothing has materialized, but we keep all doors open." AirAsia Japan is craving for Haneda rights and Skymark has 36 precious slot-pairs there, however, these generate roughly 80% of their revenue and it is unlikely they would let them go. Skymark hopes they can continue to go it alone, but with cash reserves dwindling and Airbus seeking up to 70 billion JPY for the A380 cancellation, the airline has admitted their business is at risk without outside financial support.